The lowdown on student loans
If you don’t have a student loan, congratulations! Lucky you. I took out a student loan, spent it, and now I’m on the other side, where paying council tax and working for a living are every day realities.
Are you in this position too? If so your attitude to your student debt is likely to be either outright denial, or carefully concealed panic.
In my case, it’s a mixture of both. I graduated a few years ago, and it’s easy to forget that I ever borrowed the money, and try to ignore the shadow hovering over my attempts at financial stability. But then, every once in a while, the kind folks at the Student Loans Company (SLC) send me a statement through the post. I try not to look at the numbers, but I know it’s telling me that the amount I owe is growing every day, and that with my current income, there’s nothing I can do about it. Sometimes I freak out about it, shouting five-digit numbers and wailing that my debt will swallow me alive.
There is, apparently, a third option. Instead of denying that my student loan exists, or surrending to panic and losing my mind, a friend suggested that I find out where I stand, and take appropriate action. It sounded like a good idea, so I did some research, and here’s what I discovered.
How to pay it back
If you were a student between 1990 and 1997, you have to make repayments if you earn over £25,936 a year. If you earn less than that, you need to send a letter to the SLC each year to let them know. When you start repaying, the amount owed is divided into 60 monthly repayments. You pay these directly to the Student Loans Company.
If you became a student in or after 1998, you have to make repayments if you earn over £15,000 a year. Your employer deducts the repayments from your monthly wages through the payroll before you get paid, and these are sent to the Student Loans Company. It’s your responsibility to make sure your employer is doing this. You pay 9% of everything you earn over £15,000. So if you earn £16,000, you’ll pay £90 a year. If you earn £30,000 you pay £1,260 a year.
Interest
The interest on your student loan starts when you start university or college. You won’t see it on statements until the April after you finish your course, but that’s because the interest is simply deferred and added to the total debt. Like any compounded interest, this soon adds up, so your debt may be much bigger than you expected. The interest rate on your student loan changes each year in line with inflation, because it’s linked to the retail price index (RPI), which is used to measure inflation. The debt keeps accruing interest from the day you take it out, until the day you finish paying it back.
The good news
Although it may feel like it’s killing you, the interest on your student loan is likely to be much lower than the interest rates on any other loan you take out. If you’ve taken out another loan, say to start a business or buy a car, you’ll know what I mean. While you must make the minium monthly payments on your student loan, don’t stress out about paying it off as fast as possible. Focus on paying off other debts you may have, such as your overdraft, credit card debts or your mortgage, as the interest rates on these will be much, much higher. Also, try to put a litle bit aside in a savings account, where it will actually earn you money.
The final word
You can’t avoid your student loan, so option one (ignoring it) isn’t really an option. Even if you move abroad, you have to get in touch with SLC and arrange repayments, and if you don’t, there are severe penalties. But while it’s unavoidable, there’s no need to stress about it. Don’t follow option two and panic… it’s not worth the effort. Only one option remains: know where you stand, take appropriate action, and then relax in the knowledge that your student loan is being taken care of, that it won’t eat you, and that you are free to enjoy life and concern yourself with other things.
If you would like to find out more about dealing with debt, why not take a look at Say Goodbye to Debt Stress
Photo credit: Linden Laserna
Written by Becky Matyus. Posted on 26th October.
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